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Orca Interactive Ltd (ORCA)

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Friday 24 March, 2006

Orca Interactive Ltd

Final Results

Orca Interactive Ltd
24 March 2006


                             Orca Interactive Ltd

                              Preliminary Results
                      for the year ended 31 December 2005


Ra'anana, Israel, 24 March 2006 - Orca Interactive Ltd ('Orca'), a global leader
in the IPTV middleware market, announces its preliminary results for the year
ended 31 December 2005.


Financial Highlights:


•        Revenue of $5.3 million (2004: $5.2 million)


•        Gross profit increased by 18.8% to $4.7 million (2004: $3.9 million)


•        Gross margin at 87.9% (2004: 75.7%)


•        Healthy balance sheet with net cash of $21.3 million at year end


•        3 year order book of $5.8m at year end


Operational Highlights:


•  New deals signed with Lucent, Jazztel, a tier one operator in the
Americas, Dansk Bredband, Chunghwa Telecom and one of the world's leading media
companies during the year


•  Partnership agreements signed with Lucent, IBM and Tata Consultancy
Services in 2005


•  Significant product investment during 2005 - including the launch of
the Home Media application, a new Flash SUI (Subscriber User Interface) and a
Flash based SUI SDK (Software Development Kit) and RiGHTv version 4.5,
introducing an IPTV SDP (Service Delivery Platform) to enable true open platform
capabilities


Haggai Barel, Orca's CEO, said:


'2005 was a year of further significant operational progress for Orca, as we saw
further contract wins, partner agreements and product development.   However,
our reported financial performance failed to match our expectations underlining
the nascent nature of the IPTV market and the difficulties we face in accurately
predicting revenues for our business.'


'Even so, we remain confident that we are strongly positioned to benefit from
this market opportunity and our pipeline of opportunities gives us confidence
that we can effectively leverage our leading product and strong market position
over the coming years.  To this end, the board believes that expectations for
the year to December 2006 remain a realistic target.'



Enquiries:


Orca Interactive Ltd
Haggai Barel, Chief Executive Officer                            +972 9 769 9400

Financial Dynamics
James Melville-Ross / Cass Helstrip                             +44 20 7831 3113


About Orca Interactive

Orca Interactive (LSE: ORCA) is a leading provider of IPTV middleware and
applications for broadband network operators and service providers. Orca enables
triple-play providers to deliver a full array of attractive video-over-IP
services that generate new revenue streams and strengthen customer loyalty.
Leveraging a flexible telco-grade middleware platform, Orca empowers operators
to deliver broadcast TV, video on demand (VOD), personal video recording (PVR),
home media and other compelling interactive services. Orca's SI-enabled
solutions are designed for easy outsourcing of integration services by an
operator's preferred systems integrator. Orca has formed strategic partnerships
with leading players across the IPTV value chain to ensure best-of-breed
solutions with low total cost of ownership. For more information, please visit
www.orcainteractive.com.



Analyst conference call:



A conference call for analysts will be held at 9.30am today. Please use the
following dial-in details:


UK international no:      +44 (0)1452 556 640

US number:                +1 866 434 1089


Chief Executive's Review



Overview



2005 was a year of further significant operational progress for Orca.  During
our first full year as a listed company, we made significant strides in
consolidating our position as one of the leading suppliers of IPTV middleware to
the world's ever-evolving communications market.



New contracts were signed with service providers across all the regions in which
we are active, namely the Americas, EMEA and APAC, and we also saw a number of
blue chip vendors signing up to our partner programme.



One of these Partner agreements, with Lucent, as well as a notable increase in
interest from operators in the North and South American market, encouraged us to
commit resources to address the American market in the middle of the year.
Since then we have seen significant interest for our offering in this region.



Perhaps the most disappointing element of our performance in 2005 was the fact
that we missed our revenue expectations for the year.   Whilst it is clear that
there is a very significant market for IPTV, the timing for this market is
uncertain and it remains a challenge to accurately predict our financial
performance going forward.  The contract extensions and roll-outs that we had
predicted coming from our existing customers failed to materialise during 2005
and we have become increasingly reliant on new customer wins to support revenue
growth.



Furthermore, reported revenues of $5.3m were below our expectations of
approximately $6.0m, given at the time of our trading update on 30 December
2005.  This shortfall in revenues relates to the contract which we announced on
the same date, to supply one of the world's leading media companies with a full
video-on-demand service.  At the time of the announcement in December, we
expected to recognise a small portion of the contract's revenues in the 2005
financial year.  However, following further consultation with our auditors, it
was yesterday decided that the most appropriate treatment of the revenues was to
defer revenues from 2005. We have therefore taken the step of bringing forward
our preliminary results statement, in order to update the market on this matter.



We enter 2006 with a stronger orderbook than at any time in the Company's
history.  I am excited about the opportunities ahead of us as we seek to further
consolidate our position in this rapidly evolving marketplace.



Financial performance



Revenue for the year ended 31 December 2005 was $5.3 million, compared to $5.2
million in 2004. In terms of regional breakdown, 62.4% of our revenues came from
the Americas (2004: 0.7%), 36.5% from Europe & the Middle East (2004: 30.3%) and
1.1% from the Far East (2004: 69.0%). Gross profit for the fiscal year was
$4.7million (2004: $3.9 million), up 18.8%.



Total operating expenses for the year increased by 48.1% to $9.0 million (2004:
$ 6.0 million) as we sought to consolidate our market position through
additional expenditure on sales and marketing, especially in the US, and product
development.  Research & Development expenses were $2.6 million (2004: $2.0
million).



Our operating loss therefore increased to $ 4.3 million (2004: $ 2.1 million)
and our net loss increased from $1.9 million in 2004 to $3.5 million in 2005.
This resulted in a net loss per share of $0.10 (2004: $ 0.11 net loss per
share).



Commencing on 1 January 2005, the Company adopted IFRS 2, 'Share Based Payments
'. The effect of the adoption of IFRS 2 on the 12 months ended December 2005 and
2004 is an increase in the employee benefits expenses of $0.3 million and $0.1
million respectively, with a corresponding increase in additional paid-in
capital.



Operating cash outflow during the period was $2.5 million (2004: $0.6 million).
At 31 December 2005, the Company had cash balances of $21.3 million.



As at 31 December 2005, the Company had 79 employees, an increase of 44% over
the end of 2004.



Partnerships



One of the most significant events of 2005 was the signing of the partnership
agreement with Lucent.  This deal encouraged us to enter the Americas in June.
We believe that the arrangement provides us a high level of exposure through
Lucent's first class relationships within the American service provider
community, but at the same time, minimizes the investment risk we take in
entering this new market.  The current signs are positive.



Partnerships were also initiated during 2005 with IBM and Tata Consultancy
Services ('TCS').  Our global co-marketing agreement with IBM will help Orca to
promote its products in telco tenders worldwide.  The arrangement with TCS
enables them to offer worldwide IPTV system integration and service development
over our RiGHTv IPTV middleware.



License deals



We signed a number of licenses during 2005, including deals with service
providers across the three major regions in which we now operate.



As part of our agreement with Lucent, it committed to a multi million dollar
license purchase for Orca's RIGHTv middleware solution on behalf of its
customers.



Equally significant in terms of scale, was the announcement at the year end that
we had signed a $3.0m license deal with a franchise of one of the world's
leading media companies, to become the sole provider to the franchise of a full
video-on-demand service.  We believe that this deal has the potential to
generate substantial further revenues over the coming years.  In addition, Orca
agreed to acquire a minority stake in the franchise for an investment of $2.5
million.



We also announced smaller license sales with a range of operators during the
year, including Chunghwa Telecom, Jazztel and Dansk Bredband.  Chunghwa Telecom
is Taiwan's largest telecom operator with approximately three million ADSL
subscribers.



Our sale to Dansk Bredband, a Danish broadband internet services provider, will
see us provide our middleware to power their proposed IPTV service, which will
initially involve subscribers in the Copenhagen area with planned expansion for
over 100,000 subscribers across Denmark and other parts of Scandinavia within
three years.



Orca also announced on 18 August that it will provide its RiGHTv middleware to
one of Spain's leading telecommunications and broadband providers, Jazztel, as
part of a multi-million Euro deal to allow Jazztel to penetrate the residential
broadband market. Jazztel has more than one million access lines in operation or
54% of the total of lines in Spain.



Product development



2005 saw our highest level of expenditure on R&D as we sought to further stretch
the lead of our technology over that of our competitors.  Closing 2005, we
believe that Orca's core RIGHTv middleware remains the most scalable, flexible
and technologically advanced solution on the market.



In June, we announced the launch of Home Media, a digital entertainment
application that brings digital media content from the PC to the TV. Home Media
enables subscribers to view photos and listen to music via the TV, and empowers
IPTV operators to gain a bigger share of the large digital entertainment market.



We also launched a Flash-based SUI (Subscriber User Interface) designed to spur
the evolution from passive TV watching to active on-demand mode and deliver a
new compelling, interactive user experience for the broadband television
industry. Along with the new SUI, Orca released a SUI SDK (Software Development
Kit) for Flash which incorporates Macromedia FlashTM technology for third-party
development of IPTV applications, enabling service providers and system
integrators to build branded, feature-packed TV interfaces that provide an
optimised user experience.



During the year we also launched RiGHTv version 4.5, introducing an evolution of
the middleware's architecture into a Service Delivery Platform (SDP) a service
creation and delivery system for accelerating time to market of interactive TV
applications and services to enable true open platform capabilities.



Board



In June, we announced a further strengthening of our Board with the appointment
of Nina Admoni as a non-executive director of the Company.   Nina's career spans
four decades of involvement in the international business community, including
several senior posts that she held in the service of the Israeli government and
on behalf of the United Nations. Recently, she has pursued a career as an
independent business consultant and prior to that served as Executive Director
of the Israel-America Chamber of Commerce & Industry Ltd.



Outlook



The IPTV market is a nascent market and predicting revenues for our business
remains a challenge.  Even so, we remain confident that we are strongly
positioned to benefit from this market opportunity and our pipeline of
opportunities gives us confidence that we can effectively leverage our leading
product and strong market position over the coming years.



Given the current level of our orderbook, we believe that our expectations for
2006 remain a realistic target, although we expect the majority of 2006 revenues
to be recognised during the second half of the year.



Haggai Barel, CEO




BALANCE SHEETS

U.S. dollars in thousands, except share data

                                                                                              31 December
                                                                                         2004              2005
ASSETS

CURRENT ASSETS:

Cash and cash equivalents                                                             $10,029              $961

Short-term available-for-sale marketable securities                                    13,550             6,395

Trade receivables and unbilled accounts                                                 1,335             1,568

Other accounts receivable and prepaid expenses                                            121               511

Total current assets                                                                   25,035             9,435

NON-CURRENT ASSETS:

Long-term available-for-sale marketable securities                                      1,000            13,938

Severance pay funds                                                                       445               578

Property and equipment, net                                                               494               488


Total non-current assets                                                                1,939            15,004


Total assets                                                                          $26,974           $24,439


LIABILITIES AND EQUITY


CURRENT LIABILITIES:

Trade payables                                                                           $343              $480

Deferred revenues                                                                          15               599

Other accounts payable and accrued expenses                                             2,477             2,954

Parent company                                                                            875               336


Total current liabilities                                                               3,710             4,369


ACCRUED SEVERANCE PAY                                                                     687               844


Total liabilities                                                                       4,397             5,213


EQUITY:

Share capital:

Ordinary shares of NIS 0.01 par value: Authorized: 55,000,000
shares at 31 December 2004 and 2005, respectively; Issued
and outstanding: 35,323,799 shares and 35,477,299 at
31 December 2004 and 2005, respectively                                                    81                81

Additional paid-in capital                                                             45,425            45,755

Net unrealized loss reserve                                                                 -             (163)

Accumulated deficit                                                                  (22,929)          (26,447)


Total equity                                                                           22,577            19,226


Total liabilities and equity                                                          $26,974           $24,439



STATEMENTS OF OPERATIONS

U.S. dollars in thousands, except share and per share data


                                                                                        Year ended 31 December
                                                                                         2004               2005

Revenues                                                                               $5,202             $5,325

Cost of revenues                                                                        1,262                643


Gross profit                                                                            3,940              4,682


Operating expenses:

Research and development, net                                                           2,039              2,585

Sales and marketing                                                                     3,218              4,430

General and administrative                                                                815              1,979


Total operating expenses                                                                6,072              8,994


Operating loss                                                                          2,132              4,312

Financial income, net                                                                     200                794


Net loss                                                                               $1,932             $3,518


Basic and diluted net loss per share                                                    $0.11              $0.10


Weighted average number of shares used in
computing basic and diluted net loss per share                                     17,145,648         35,412,746




STATEMENT OF CHANGES IN EQUITY

U.S. dollars in thousands, except share data

                                                                                 Net                              Total
                                                                 Additional   unrealized                     recognized
                      Preferred shares       Ordinary shares       paid-in      loss   Accumulated           income and
                      Shares   Amount       Shares    Amount       capital     reserve    deficit    Total     expenses
                                                                                                                 equity
                                                                                                   
Balance as of 1   12,098,327       29     23,900    **)  -        3,003            -      (20,997)   (17,965)
January, 2004

Effect of adopting         -        -          -         -           86            -          (86)          -
IFRS2

Conversion of
convertible loans
from Parent Company
into               
Class A Preferred
shares             8,968,643       20          -         -       20,286            -             -     20,306

Conversion of Class A
Preferred
shares into Ordinary
shares          
upon Initial Public
Offering        (21,066,970)     (49) 21,066,970        49            -            -             -          -

Issuance of Ordinary
shares
upon Initial Public
Offering, net *)          -        -  14,141,414        32       22,025            -             -     22,057

Issuance of shares
upon exercise
of employees' share
options, net              -        -      91,515    **)  -           25                          -         25

Net loss                  -        -           -         -            -            -       (1,846)    (1,846)  (1,846)

Balance as of 31          -        -  35,323,799        81       45,425            -      (22,929)     22,577  (1,846)
December 2004

Issuance of shares
upon exercise
of employees' share
options, net              -        -     153,500    **)  -           42            -             -         42

Unrealized losses on
available-
for-sale marketable
securities, net           -        -           -         -            -        (163)             -      (163)    (163)

Share-based               
compensation              -        -           -         -          288            -             -        288

Net loss                  -        -           -         -            -            -       (3,518)    (3,518)  (3,518)

Balance as of 31          
December 2005             -       $-  35,477,299       $81      $45,755       $(163)     $(26,447)    $19,226  (3,681)

*)    Net of issuance costs in the amount of approximately $ 3,125.

**)   Represents an amount lower than $ 1.



STATEMENTS OF CASH FLOWS

U.S. dollars in thousands

                                                                                Year ended 31 December
                                                                                  2004             2005
Cash flows from operating activities:

Net loss                                                                      $(1,932)         $(3,518)

Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation                                                                       382              295

Share-based compensation                                                            86              288

Decrease (increase) in trade receivables, unbilled accounts,

other accounts receivables and prepaid expenses                                    168            (623)

Increase in trade payable and other accounts payable

and accrued expenses                                                               747              431

Increase (decrease) in deferred revenues                                          (55)              584

Increase in accrued severance pay, net                                              11               24


Net cash used in operating activities                                            (593)          (2,519)


Cash flows from investing activities:

Investment in short-term available-for-sale
marketable securities                                                         (13,550)                -

Investment in long-term available-for-sale
marketable securities                                                          (1,000)         (14,012)

Proceeds from maturity of short-term available-for-sale
marketable securities                                                                -            8,066

Purchase of property and equipment                                                (48)            (289)


Net cash used in investing activities                                         (14,598)          (6,235)


Cash flows from financing activities:

Refundable grants received from Chief Scientist Office                             200              292

Parent Company                                                                     875            (539)

Issuance of shares upon exercise of employees'
share options, net                                                                  25               42

Issuance of shares upon Initial Public Offering                                 25,182                -

Issuance expenses                                                              (2,561)            (109)

Convertible loans from Parent Company                                            1,396                -


Net cash provided by (used in) financing activities                             25,117            (314)


Increase (decrease) in cash and cash equivalents                                 9,926          (9,068)

Cash and cash equivalents at the beginning of the year                             103           10,029


Cash and cash equivalents at the end of the year                               $10,029             $961


Supplemental disclosure of cash flow activities:

Cash received during the year for:

  Interest, net                                                                   $200             $656

Non-cash activities:

Conversion of convertible loans from Parent
Company into shares                                                            $20,306               $-

Issuance expenses payable                                                         $564               $-


                      This information is provided by RNS
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